Summary The S&P 500 had a 2.39% return in Q4, outperforming bonds, with large caps and growth stocks leading over small caps and value stocks. Bitcoin is viewed as a compelling value opportunity due to its stable creation process, first-mover advantage, and low correlation with traditional markets. Despite criticisms, Bitcoin's market cap approaches $2 trillion, with growing institutional adoption and a significant presence in global financial assets. The US dollar's governance process is imperfect, leading to inflation and reduced purchasing power, while Bitcoin offers a predetermined supply requiring physical energy. The fourth quarter was a relatively uneventful one in US markets, with the S&P 500 ( SP500 , SPX ) doing what it has done for most periods of its history — go up. Its 2.39% total return had minimal drawdowns and compared favorably to the -3.06% performance from bonds, as measured by the Bloomberg Aggregate index. Large caps and growth stocks outperformed small caps and value stocks, leading to a generational discrepancy in valuations – see my colleague Dan Lysik’s excellent shareholder letter for more detail on this topic. While our public strategies are concentrated in small- and mid-cap value stocks, we have benefitted from indirect exposure to Bitcoin ( BTC-USD ) in certain strategies. As we intend to have exposure to Bitcoin for the foreseeable future, the balance of this letter will discuss why we view it as a compelling value opportunity despite it having no dividend, SEC filings or corporate strategy. Bitcoin is a divisive topic in “TradFi” circles, so much so that it generates dysfunctional anticipatory schadenfreude from spectators. A prominent quantitative investor recently penned a prospective lookback letter from the year 2035, in which he facetiously dumped on Bitcoin with a $10,000 price prediction, or down approximately 90% from current levels, along with a not-so-subtle dig at Microstrategy ( MSTR ). To paraphrase the rationale — Bitcoin represents useless artificial scarcity with no intrinsic value. This perspective is not new and has been oft-repeated since Bitcoin’s inception sixteen years ago, while more people each year arrive at the opposite conclusion. Markets currently ascribe nearly $2 trillion worth of value to the technology, and the collection of Bitcoin ETFs launched less than twelve months ago now hold over $100B in assets with billions of dollars in average daily volume. There are over 70 companies on global public exchanges collectively owning nearly 600,000 Bitcoin, and Microstrategy is now a part of the NASDAQ index. Leading United States politicians are talking about establishing a Strategic Bitcoin Reserve. Writer Henry David Thoreau once noted, “The question is not what you look at, but what you see.” What we see, and likely other buyers too, is not a worthless information ledger, but a thermodynamically sound unit of account for capital governance built on a more stable process than what we know today – that is, unlike fiat currency, the creation of new bitcoins is predetermined and requires physical energy. The technology’s first-mover advantage and causal ambiguity mean that it would probably be hard for another proof-of-work protocol to catch it. One of the reasons America is the most desirable country for in-migration, with more immigrants than the next closest four countries combined, is because of its stability of government process; indeed, this is a primary reason why so many still view the United States dollar as the reserve unit of account. But the governance process behind the US dollar is also imperfect – the same number of dollars that bought a house a century ago now pays for a few months of rent. This is because politicians maintain their jobs by changing outcomes, which they effect through the creation of new fiat currency units, thereby reducing the currency’s value slowly but surely. The compounding effect of this growth destroys the unit of account’s purchasing power over time; look no further for proof than the fact that 78% of all US dollars that exist in today’s narrow money supply were created in the past five years. It is also probably not a coincidence that the long-term appreciation rate of the stock market resembles the growth rate of dollars outstanding. In no way is this a criticism of US policy or advocation for monetary policymakers to adopt a zero percent inflation target – indeed, there would be no easier way to crash the economy than to enact a policy that calls for flat prices or deflation. The phenomenon we observed in the Great Financial Crisis demonstrated that our current banking and political systems require asset inflation for indebted consumers and governments to eventually pay off their obligations. We have no privileged view into what asset prices will be ten years from now, but we think that trying to understand what has happened so far is a good starting point. Perhaps what is emboldening investment professionals to call out Bitcoin at this precise moment is the fact that the market is not cheap by historical standards, and they think that Bitcoin must be susceptible to a decline if stocks are; however, Bitcoin is not a stock, and it actually shows little correlation with the market when you look at the data – the weekly correlation with the Nasdaq over the past decade is just 0.17 and an even-lower 0.16 with the S&P 500. This could be why it enrages quants and academics – it does not fit neatly into their models. Some have asked us, “Does anything worry you about Bitcoin?” Sure – the unknown unknowns should worry us more than what we know. One such worry is limited computer science knowledge and a resulting inability to understand the source code. But we do know that it is open source and based on decentralized governance, and a lot of computer scientists have taken a much closer look at it with none raising an unsurmountable issue. There are indeed transaction scalability constraints, but there is capital and brainpower focused on this issue – one such solution being Bitcoin held in more centralized accessible formats like public equities or exchange traded funds. On a discussion forum in 2009, Satoshi wrote, “It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.” Enough people are starting to think this way, and at a $2trillion market capitalization, Bitcoin is approaching a 1% weight in the global market basket for financial assets with a track record of outperforming everything in sight and no signs of slowing. Staying on the sidelines has been a losing proposition, and the burden of proof on calling for a reversal over the next decade appears higher than betting that adoption will continue at a rate outpacing the growth in outstanding fiat currencies. As always, we remain the largest investors in our strategies and welcome any questions or constructive comments. The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. The Bloomberg US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. TradFi , or Traditional Finance, encompasses all aspects of the traditional financial system, such as banking, the stock market, the bond market, venture capital, and hedge funds. The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of NASDAQ securities and it includes over 3,000 stocks. Fiat is a government-issued currency that is backed by the government who issued it, as opposed to a physical commodity such as gold or silver. For more information about Miller Value Strategies, please contact us . The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. The views expressed in this commentary reflect those of the author as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Miller Value Partners disclaims any responsibility to update such views. These views are not intended to be a forecast of future events, a guarantee of future results or investment advice. Data from third-party sources cited herein is believed to be reliable, but may not have been independently audited by Miller Value Partners. ©2025 Miller Value Partners, LLC Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
